Modern Australian
Men's Weekly

.

Land makes the housing market different, so changing planning rules won't fix affordability

  • Written by Brian Feeney, Adjunct Fellow, School of Earth and Environmental Sciences, The University of Queensland

A commonly held view is that changing planning rules could significantly increase housing supply and hence make housing more affordable. Recent commentary, including in The Conversation, repeats this. It’s a view that glosses over the special features of land, which allow property developers to control housing supply to a significant extent.

To understand what’s going on, we need to look at why land makes the housing market different from any other.

Read more: Affordable housing policy failure still being fuelled by flawed analysis

Economic theory and the special features of land

Land has special features that other goods don’t usually have. The most fundamental of these features is fixed location.

What’s more, land does not physically degrade over time. As a result, it doesn’t have to be sold but instead can be withheld from sale without financial cost.

These features are important when considering the application of standard supply-demand theory to housing markets.

Economic theory says increasing the supply of a good will lower the price for a given level of demand. Like a lot of economic theory, this is based on simplifying assumptions. The following assumptions are particularly relevant when considering land:

  • the good is homogeneous
  • all market participants have full information about the market
  • no participant has an undue influence on the market
  • there are no barriers for new market participants.

However, we know that land is not homogeneous. Location is particularly important.

And property developers generally have much more knowledge of the market than individual buyers, potentially giving developers undue influence.

The capacity of developers to withhold land from sale and the fact that new developers wanting to enter the market face significant barriers – importantly the financial capacity to hold back land when demand and sales are reduced – are also at odds with the assumptions of supply-demand theory.

UK economist Josh Ryan-Collins notes that current economic theory does not differentiate between land and capital (such as machinery). This may well be one of the main reasons the special features of land are often overlooked in discussions about housing supply.

Read more: Why rents, not property prices, are best to assess housing supply and need-driven demand

Governments don’t control housing supply

In the past, governments developed more housing directly, but over the past 20-30 years the role of government has been mainly to enable private developers to provide housing.

Governments may release enough land for the expected population, but private developers decide how much housing is offered for sale at any time. It’s no secret that, for larger residential estates in particular, demand dictates the rate at which lots are released to market. This is a logical business strategy, but much of the commentary on housing supply fails to acknowledge this.

Land makes the housing market different, so changing planning rules won't fix affordability Off-the-plan sales are one way developers ensure projects only go ahead when prices suit them. James Ross/AAP

In the Gold Coast region, for example, where a relatively small number of larger estates provide most of the new residential land, the median price of vacant residential land has remained remarkably stable since the GFC despite large fluctuations in the number of sales. This suggests something other than the standard supply-demand theory is operating.

As noted above, developers of new estates in outer areas can “drip-feed” the market to keep prices up.

For new apartments in established suburbs, off-the-plan sales allow developers to test the market before building. If interest in the apartments at prices set by the developer is insufficient, the project will not go ahead. Of course, there can still be an oversupply of apartments if future demand is overestimated.

Read more: Australia's almost a world leader in home building, so that isn't a fix for affordability

Planning rule changes won’t make much difference to supply

Markets for residential land are distorted by three main factors:

  • location is very important
  • land is a not a homogeneous good
  • developers can influence supply.

This means that changing planning rules is unlikely to make much difference to housing supply or affordability. Housing supply can’t readily be increased without direct government construction. Even then developers will be likely to respond by restricting overall housing supply if they can.

With supply restricted, price is significantly influenced by demand factors. These include finance interest rates, tax concessions and buyers’ expectations of future capital gains.

Therefore, policy that focuses on managing demand factors offers much more hope of improving housing affordability than do changes to planning rules.

Read more: Facts sink glib housing supply mantra – the focus must be on affordable rental

Authors: Brian Feeney, Adjunct Fellow, School of Earth and Environmental Sciences, The University of Queensland

Read more http://theconversation.com/land-makes-the-housing-market-different-so-changing-planning-rules-wont-fix-affordability-107182

Your Guide to Finding the Right GP: What Perth City Doctors Offer Today

Choosing a General Practitioner (GP) is one of the most important health decisions you’ll make. Luckily, Perth’s vibrant CBD now hosts a new ge...

Why Every Mining Operation Needs a Robust Safety Management System

Mining is one of the backbones of the Australian economy, particularly in Western Australia. Back in 2019-20, mining contributed 10.4% of Australia...

Australian Classic Literature Enjoys Resurgence

Welcome back to the good old days of storytelling! As the modern world becomes increasingly more demanding, returning to childhood favourites offers...

Building a Governance Model for Headless Content Management at Scale

Image by pch.vector on Freepik There's never been a better time to implement a headless content management system (CMS) to gain the flexibility and ...

Understanding Trade Insurance: Essential Protection for Businesses

Image by Drazen Zigic on Freepik In the current economic environment, trade insurance is an important element for companies trading both locally an...

Choosing the Right Timber for External Cladding

Timber cladding is one of those finishes that pulls double duty: it makes a building look warm and welcoming, and it quietly shields the frame from ...

Top Services Offered by Diesel Mechanics in Brisbane

Keeping a diesel vehicle running at its best takes more than the occasional oil change. When you invest in regular specialist care, you protect the ...

Top 5 Benefits of Hiring Professional House Removalists

Moving day should feel like the start of a new adventure, not the end of your patience. Yet once the settlement papers are signed and the champagne ...

Navigating the Digital Landscape: Managed IT Solutions and IT Services in Townsville

As technology advances at an unprecedented pace, companies must adapt to embrace the transformation ahead. With an evolving technology landscape, mana...

Types of Catering You Should Consider for Your Next Event

Choosing the right type of catering service can elevate your event from ordinary to unforgettable. Whether it’s an elegant wedding, corporate func...

Understanding the Benefits of Split System Installation for Your Home

Climate control is essential to maintaining comfort in your home, especially during the extreme temperatures that many regions face. Whether you’r...

Best Aluminium Window Sliding Designs for Natural Light and Airflow

Bringing natural light and airflow into a space is one of the most efficient ways to create a healthy and comfortable home. In Sydney and across Aus...

Maximising Operational Efficiency: Electric Winch Hire Australia and Hydraulic Power Pack Hire Solutions

Image by jcomp on Freepik From urban construction sites and remote mining operations to coastal maritime facilities, specialised equipment solutio...

Navigating the System: Your Guide to Support Finding Work with a Disability Around Melbourne

Image by freepik Finding the right job can be a challenge for anyone, but it can feel particularly daunting when you're also navigating life with a ...

Say Goodbye to Draughts and Hello to Savings: Your Guide to Perth Window Replacement

Image by prostooleh on Freepik Are your windows looking worse for wear? Are you paying a hefty power bill due to sneaky draughts and poor insulation...

How to Choose the Right Horse Trailer for Your Riding Needs

Many horse owners travel long distances for riding lessons, competitions, or to move horses between properties. Having a safe and reliable trailer i...

Sydney Turf Installer for Instant Green Lawns and Long-Term Performance

Having a green lawn at home makes everything look better. Whether it’s the front yard, backyard, or a small patch beside the driveway, people in S...

Designing Better Living Spaces: Why New Kitchens in the Blue Mountains Are in High Demand

The Blue Mountains region is seeing a steady rise in home upgrades. According to recent housing data, kitchen renovations remain one of the most req...